(2) The Emergence of Labor Brokers, Wage Theft, and Corruption in a Cash-Only World

As we have seen in small firms such as Combat Drywall and in very large ones like Metro Walls, the majority of work in drywall is done by workers who are not direct employees of general or subcontractors. As this became more the norm in nonunion residential construction, the demand for workers far outstripped the informal networks that supplied workers in the early 2000s. In this void, a new labor intermediary has emerged that in many ways represents the addition of another level of subcontracting in residential construction. As we saw in both examples, Combat Drywall and Metro Walls relied on workers brought to them by a labor broker. It is important to note that the brokers are neither involved in the actual work nor are they the employer of record. They simply provide workers for the jobsite. Although the subcontractor does the supervising – which classifies the workers as employees – the workers are not considered employees. Instead, they are handed cash by the broker, who gets paid by the subcontractor.

Like most drywallers in the Boston area, Fernando has worked for subcontractors doing business with Metro Walls. He describes the economics of working for a labor broker. Grabbing a notepad that was on the table he jots down numbers as he talks. “Metro would start by paying each guy, $28 an hour, while the second guy [subcontractor] comes in, they’re paying him $24 an hour [and he] gives me $20. … Sometimes even a third tier where he’s taking $2 off of him and the worker ends up getting paid $18 an hour.”³² As Fernando details, up to $10 per hour are being taken from workers by brokers who actually do nothing on the job, except supply workers. And, he adds, he was paid in cash, always in cash. He had no record of his employment or what he was paid.

The brokers realize that if they paid workers by check and issued 1099s, they could be traced. So, for them it is strictly a cash operation. But in this world of cash, it is easy for brokers to delay paying workers in a timely fashion, to pay them less than they earned, and sometimes to not pay them at all. This is what happened at the North Square Apartments in Amherst, Massachusetts.

In the construction industry, workers get paid at the end of each week they work. Although Combat was supervising the drywall hanging at North Square, the workers were supposed to be paid by Alvarez in cash. When payday came, Alvarez (Jimy Reyes) told the workers “That they were going to have to wait two, three weeks for him to pay them.” Alvarez said that Combat Drywall had not paid him. As one worker explained, “This guy Alvarez says, ‘You’re going to have to wait for two, three weeks before I get caught up … [so] keep on working.”³³ From experience, the workers knew that these kinds of delays were not uncommon. Having already invested a number of weeks of their time, they knew that walking away would make it very difficult to stake claims on the substantial amount they were owed, so they stayed on.

Several of the workers also reached out to Frank Gomez, an organizer with the North Atlantic States Regional Council of Carpenters (NASRCC), based out of Worcester, Massachusetts, on June 14, 2019. Some of the workers on the Amherst project had also worked for Combat and Alvarez on a Plumb House project in Weymouth, another case Gomez had been investigating because Alvarez hadn’t paid his workers properly. “I went to Weymouth and I saw all of them working over there. And I show up, and I said, ‘Look, this guy you’re working with is going to rip you off sooner or later. And here’s my card.’”³⁴ For a number of years, the NASRCC has employed organizers like Gomez who work full time assisting nonunion workers in the industry combating wage theft. They have become a known presence in the non-union residential industry in the North Atlantic states.

Combat’s owner, Luc Gagnon, was no stranger to Gomez. “He is a repeat offender,” Gomez acknowledges. “He’s been doing it over and over.”³⁵ By the time Frank Gomez became involved in the Amherst project, nine workers had worked five six-day weeks averaging 10-hours a day. The workers estimated they had hung one half of the sheet rock for the North Square Apartments³⁶ and had not been paid one penny by Alvarez Drywall or any other entity. This is classic wage theft: namely, failing to pay earned wages to some of the most vulnerable workers in America. All of this in a development built by a socially conscious developer underwritten by the taxpayers in the progressive town of Amherst.

Gomez got nowhere with his efforts to reach an informal settlement, so he filed a Wage Complaint with the Massachusetts Attorney General’s office on July 28, 2019. The complaint reads, “The workers who performed drywall and related duties at the Beacon Properties, Cowls Road, Amherst, MA project were hired at the rate of $26.00 per hour for straight time. These workers worked a total of 1,361 straight-time and 303 overtime hours during the [period] listed.”³⁷ The total owed amounted to $50,713—$35,386 for straight time and $15,327 for overtime—and not a single worker had been paid for this work.

But what happened in Amherst is not the exception. Virtually every non-union worker we interviewed reported regularly being cheated out of their wages. Carlos describes the process. “You don’t want to pay me for a week? I can’t go to your boss and be like, ‘he won’t pay me,’ because your boss doesn’t even know I’m there. He doesn’t know who’s working for his subcontractor. He doesn’t know who’s below the sub. He doesn’t know any of that. So, to him, he doesn’t even know you’re on the jobsite. How is he going to know that you were there? He doesn’t. So, you can’t come to him, ‘oh, I worked 40 hours this week, he’s only trying to pay me 25.’” With his voice on the edge of anger Carlos exclaims, “You can’t. You’re just a number. And even if you’re not a number, you’re nobody. All they care is about their production, their money, and their people.”³⁸

Fernando explains, “That happens all the time, and it’s part of the game. And unfortunately, when you’re a Latino, you get discriminated against.” He recalls when he first started working for a labor broker for Metro Walls: “They owed me a thousand dollars that I just [have] never been able to recover.” Fernando reflects that he “did not have enough education, not enough know-how to know how to react in situations like that.””³⁹

Based on our interviews it is well known in the industry that many labor brokers make their income from stealing the wages of their workers. But this is not a system driven alone by the unethical and illegal behavior of labor brokers. Brian Richardson describes how the general contractors and subcontractors take advantage of the labor brokers, many who have limited English and are inexperienced in running large jobs. “They don’t have the business acumen.”⁴⁰ We interviewed a longtime carpenter who now works for a construction firm. He describes how the process works for him. “So, when we bid these jobs, you know, I spend a lot of time looking at blueprints. We have multiple people looking at it, we ask advice, we figure it out, we figure out hours, methods, site logistics.” It is a very different process for the labor brokers. “They just say, how much? Okay, we’ll do it. And then they will abuse the workers by not paying them, or whatever it takes to make whatever money they have in their head. So, there’s no math that they’re doing. They just take the job for whatever they’re told and that’s it, and they don’t care.”⁴¹

The carpenter goes on to explain the perverse incentives: “They’re just happy to have the job, because if they’re going to lose money, they just walk. They go, ‘Well, I got 20 grand: I’m happy with 20. I’m out, see you later.’” In terms of their crew, “they’ll make promises, on the next job, I’ll take care of you.⁴² As he describes it, all the power remains in the hand of the general contractor.

If they’re not happy with the framer, then they back-charge the framer, throw them off the job, steal the rest of the money from his contract. Then the framer can’t do anything, because he’s doing everything illegal, so they go, you’re done. We’re taking your 600 grand, you’re gone, and then they pay the next guy. And then if they don’t like him, they say the same thing and they pay the next guy, because when the framer’s doing something illegal, the general contractor has total control. They’re in charge. You don’t like it? You don’t want to fix it for free? You don’t want to do what we want? We’re just going to get somebody else, and they’re not going to fight, because they know they’re doing something illegal.⁴³

But despite this failure of the subcontractor being unable the finish the work, it is a boon to the general contractor. Richardson explains, “So when he doesn’t get it done… I don’t pay him because he didn’t finish, and I hire somebody else [saying] ‘I’ll give you $20,000 to finish it.’” But in terms of the total cost, the contractor is getting a lower price. The contactor wins, the labor broker wins—not by actually performing the work they were supposed to do, but through stealing the wages that their workers were supposed to get. And the workers lose. The carpenter now working for a contractor says that the contractors know all this: “Well, they’ll never admit to that, but they know. They don’t care; they’re just looking to get the price as low as possible.”⁴⁴

We had the opportunity to interview a labor broker who works in the greater Boston area. Jorge is young and new as a labor broker, although he has had jobs in the industry since he was a teenager. He works for a variety of firms including Optiline,⁴⁵ a large regional drywall contractor competing with Metro Walls. Jorge agrees with the workers we interviewed about how jobs are run by the big sheetrock companies. He was very clear that he does not run the job. “Every company has their own foremen. So, they tell me, ‘we have 16 units on this floor that are ready, it’s these, these.’ So, I just call my crew, we take them up.” Jorge is unusual in that unlike the majority of labor brokers he actually works on the job. We asked him again, just to be sure who was in charge, and he repeated that the sheetrock companies are: “Yeah, they’re actually supervising.”⁴⁶

Jorge explained how he determined a bid for a job. He replies that “there’s not a lot of mystery” in hanging drywall. “Usually, we don’t really work with bids. Companies like Optiline and Combat Drywall, Metro Walls, all those companies—they have a set price for each sheet they put. And that’s how we usually work.” Jorge says he then turns around and pays his workers—a pretty tight crew of family and friends—also by the sheet. This is a pretty tough way to run a business. Without making any calculations, he is assuming that all of his overhead and profit needs to come out of the difference between what Metro Walls or Optiline pay the broker per sheet and what he pays his workers per sheet. But he doesn’t really have any bargaining power. This is what the big companies are offering—take it or leave it, he says: “It’s tough out there. If you let yourself get eaten, you’ll get eaten.”⁴⁷

Following the path of many textile workers and plasterers before him, Richard Pelletier came down from Quebec to New England in 1986. He worked as a subcontractor until 2002 when he started Universal Drywall. “We had over 120 [workers] at one point. Everybody was getting a 1099. Everybody was paying taxes. Everybody was [living] the American dream, except for maybe two or three guys that didn’t pay taxes, that couldn’t own a house, couldn’t own a truck. But it’s better than what we have today, with the labor broker.”⁴⁸

“The labor brokers came in and at first, it was just the one guy. And then they’re like, ‘I have two other guys I could bring on, if you need more guys.’ So, there’s always like the need for more guys, if you’re taking on some larger contract, bigger jobs. So yeah, bring them. … And then that kept growing and growing.”⁴⁹ Pelletier goes on to describe how this fundamentally changed his business. “We were a management company, where we hired subcontractors that knew what they were doing…So we were managing the drywall industry, not really doing the work ourselves.”⁵⁰

In 2015, Pelletier decided that this business model would no long be viable for him, and he decided to become a union contractor. “I didn’t want to monitor everybody’s payroll. I have one business to run. I don’t want to run 6 businesses or 10 businesses. And I don’t want to run a subcontractor’s business, making sure that their guys are getting paid on payroll. … or pay anybody in cash.” He concludes, “I like the union better, because I know everybody gets a payroll check, and nobody gets paid in cash. And everybody is paying taxes and doing their work every day. Guys are getting better benefits, pensions.”⁵¹

The net result of this use of labor brokers—and, as we have seen above, sometimes sequential labor brokers—is that it makes it virtually impossible to work as a legitimate non-union contractor who fairly (legally) pays workers. Tom Flynn describes:

Not too long ago, [we had a] wood frame [job] with a big national developer. … Three union companies bid it. They were all within $100,000 of each other … and they’re all bidding it through the lumber yard, so, you know, they’re giving a price for labor and materials. The non-union contractors [bidding on the job] through the same lumber yards, their price was $4 million less than the union contractors. … There’s only one way you can get to a price that’s 40% to 60% of what the other guy was … The common denominator is the use of the labor broker.⁵²

The carpenter we spoke to who is now working for a construction company suggests that the difference between legitimate non-union companies and the labor brokers used to be “10% more. Now it’s almost sometimes 40, 50%.”⁵³ Industry insiders we interviewed suggested that as a result, there are virtually no legitimate non-union contractors operating in drywall in the greater Boston area or anywhere in the Commonwealth. The labor brokers have now taken over in the industry.

Labor brokers work entirely in the world of cash which makes their operations invisible. Although labor brokers may be receiving checks from subcontractors, our interviews suggest that labor brokers do not use conventional banking services that would leave traces of these deposits, but instead choose local cash-checking services. As many have noted, these check-cashing firms operate outside the regulatory framework that governs more traditional banking and therefore escape monitoring. This provides the mechanism to avoid taxation and formally declaring income.⁵⁴

Additionally, paying undocumented workers in cash (as well as not classifying them as employees) means that no one is responsible for the employment of undocumented workers—there is no paper trail to follow. When contractors first began using independent contractors, they issued them 1099s, which is required under IRS regulations. But they discovered that these 1099s could be traced and abandoned them in favor of cash transactions.

In many ways this new business model is a response to the increased use of undocumented workers and amounts to a workaround absolving general contractors, subcontractors, and even labor brokers from any responsibility for employing workers without appropriate papers. Actual records for these undocumented workers do not exist in non-union residential construction—yet as we have seen, they are its dominant workforce.

As much as this cash world benefits employers—and putting aside for the moment the wage theft that all too frequently occurs—it has an additional cost for undocumented workers. As the Biden administration begins to explore paths to citizenship for undocumented workers in the United States, one of the important factors will be individuals’ work records; they will help to demonstrate not only a worker’s level of responsibility, but also the fact that many undocumented workers have already paid large amounts of federal and state taxes, as well as made contributions to the Social Security system. As Gladys Vega from the Chelsea Collaborative suggests, “it’s a way that they can put in an immigration application ’Listen, I was undocumented, but I never stopped paying my taxes.’”⁵⁵ Undocumented workers in residential construction who are paid in cash will have no such records, even though many have worked for extended periods of time.

According to a number of people we interviewed, some labor brokers also provide letters to the people who work for them so that they can receive free health insurance through a state program. As one contractor reported, “They just have to go to their boss, and they have to do a letter, saying you make $400 a week. So, I’m able to get that letter signed by my boss and go and apply for free health insurance.”⁵⁶

As we have seen, labor brokers operate in a netherworld—a world of cash without legal responsibilities and without regulation. They accept jobs they are not sure they can complete within budget, and then they steal workers’ wages to ensure their own profitability. And because the workers they supply to the job site are not their employees, they—and the subcontractors who employ them—absolve themselves of any responsibility for their wages or benefits, working conditions, or their safety and health. It is important to take a closer look at the consequences of the business model.